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Employment - wage decisions in the insider-owned firm

  • Polterovich, Victor

    ()

    (BOFIT)

The paper is intended to explain low sensitivity of employment decisions observed in transition economies where insider ownership prevails and capital markets are not highly developed. We introduce a stability concept for employment levels of a labor-managed firm and prove that there exists a segment of stable employment levels. If a level belongs to the interior of the segment then the firm keeps the same labor input level under any not too large changes. By contrast, the wage rate is re-sponsive. Only the firms on the boundaries of the segment may reconsider em-ployment decisions. Deterioration of market conditions entails decreasing labor inputs for firms with much excess labor and, the same time, increases employment for firms with low levels of labor input. This creates inter-firm flows of workforce and restrains the rise of total unemployment. Stability segments exist also for firms where employment-wage decisions are made by bargaining between workers and managers, and may exist for manager-dominated firms as well. Several concepts of labor hoarding are discussed.

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File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/dp0100.pdf
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Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 1/2000.

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Length: 45 pages
Date of creation: 10 Jan 2000
Date of revision:
Handle: RePEc:hhs:bofitp:2000_001
Contact details of provider: Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
Web page: http://www.suomenpankki.fi/bofit_en/
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  1. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  2. Steinherr, A. & Thisse, J. -F., 1979. "Are labor-managers really perverse?," Economics Letters, Elsevier, vol. 2(2), pages 137-142.
  3. Richard Layard & Andrea Richter, 1995. "How much unemployment is needed for restructing: the Russian experience," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(1), pages 39-58, 03.
  4. Dreze, Jacques H, 1976. "Some Theory of Labor Management and Participation," Econometrica, Econometric Society, vol. 44(6), pages 1125-39, November.
  5. Derek C Jones, 1998. "The Economic Effects of Privatization: Evidence from a Russian Panel," Comparative Economic Studies, Palgrave Macmillan, vol. 40(2), pages 75-102, July.
  6. Bonin, John P., 1992. "Privatization and efficient contracts: The workers' stake in the transition," Journal of Comparative Economics, Elsevier, vol. 16(4), pages 716-732, December.
  7. Prasnikar, Janez, et al, 1994. "Behavior of Participatory Firms in Yugoslavia: Lessons for Transforming Economies," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 728-41, November.
  8. Earle, John S & Estrin, Saul, 1997. "After Voucher Privatization: The Structure of Corporate Ownership in Russian Manufacturing Industry," CEPR Discussion Papers 1736, C.E.P.R. Discussion Papers.
  9. Craig Ben & Pencavel John, 1993. "The Objectives of Worker Cooperatives," Journal of Comparative Economics, Elsevier, vol. 17(2), pages 288-308, June.
  10. Swati Basu & Saul Estrin & Jan Svejnar, 1997. "Employment and wage behaviour of industrial enterprises in transition economies: The cases of Poland and Czechoslovakia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 5(2), pages 271-287, November.
  11. Bonin, John P., 1981. "The theory of the labor-managed firm from the membership's perspective with implications for marshallian industry supply," Journal of Comparative Economics, Elsevier, vol. 5(4), pages 337-351, December.
  12. Nicolas Barberis & Maxin Boycho & Andrei Shleifer & Natalia Tsukanova, 1995. "How Does Privatization Work? Evidence from the Russian Shops," Harvard Institute of Economic Research Working Papers 1721, Harvard - Institute of Economic Research.
  13. J Earle & S Estrin & L Leshchenko, 1996. "Ownership Structures," CEP Discussion Papers dp0315, Centre for Economic Performance, LSE.
  14. Simeon Djankov, 1999. "Ownership Structure and Enterprise Restructuring in Six Newly Independent States," Comparative Economic Studies, Palgrave Macmillan, vol. 41(1), pages 75-95, April.
  15. Maxim Boycko & Andrei Shleifer & Robert W. Vishny, 1993. "Privatizing Russia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 139-192.
  16. Susan J. Linz & Gary Krueger, 1998. "Enterprise Restructuring in Russia's Transition Economy: Formal and Informal Mechanisms," William Davidson Institute Working Papers Series 152, William Davidson Institute at the University of Michigan.
  17. Susan J. Linz, 1998. "Job Rights in Russian Firms: Endangered or Extinct Institution?," William Davidson Institute Working Papers Series 128, William Davidson Institute at the University of Michigan.
  18. Philippe Aghion & Olivier J. Blanchard, 1998. "On privatization methods in Eastern Europe and their implications," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 6(1), pages 87-99, 05.
  19. repec:cup:cbooks:9780521464673 is not listed on IDEAS
  20. Estrin Saul & Svejnar Jan, 1993. "Wage Determination in Labor-Managed Firms under Market-Oriented Reforms: Estimates of Static and Dynamic Models," Journal of Comparative Economics, Elsevier, vol. 17(3), pages 687-700, September.
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